Global Factory Activity: US Manufacturing Continues to Weaken While Eurozone Momentum Carries On

From the U.S. seeing continuously weakening growth to China inching back into expansion territory and the Eurozone enjoying continued manufacturing momentum, conditions in the sector were generally subdued in June, though there were clear over performers.

Factoring global performance, the J.P. Morgan Global Manufacturing Purchasing Managers’ Index (PMI) for June was 52.6 (a PMI of 50 separates growth from contraction), the same as in May. According to J.P. Morgan, manufacturing growth is “solid” and “steady” and factory output should be well supported in the second half of the year.

Here’s a look at June’s PMI for the countries making much of the world’s clothes.

United States

Production volumes rose the slowest since September 2016, and new orders and employment slowed in the month, too. Cost pressures were subdued, leading to the lowest factory gate price inflation since late last year. Since June last year, higher levels of manufacturing production have been recorded but softer new business growth kept production schedules at bay. The rate of inventory accumulation was the sharpest it’s been in four months.

“Manufacturers reported a disappointing end to the second quarter, with few signs of growth picking up any time soon,” IHS Markit chief business economist Chris Williamson said. “Forward looking indicators—notably a further slowdown in inflows of new business to a nine-month low and a sharp drop in the new orders to inventory ratio—suggest that the risks are weighted to the downside for coming months.”

China

Things in the manufacturing department got a touch better for China in June.

The PMI came in at 50.4 in June, up from 49.6 in May, sliding the country back into expansion territory—albeit barely.

Companies in China noted slightly stronger increases in production and new orders (the quickest increase seen in the last three months), which led to increases in purchasing activity, though slight. Muted client demand led manufacturers to reduce their inventory holdings and cut back on workforce. Input costs and output charges increased at the end of the second quarter after declining in May.

“The manufacturing sector recovered slightly in June, but based on the inventory trends and confidence around future output, the June reading was more like a temporary rebound, with an economic downtrend likely to be confirmed later,” Dr. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group said.

Canada

In Canada, manufacturing conditions continue to rebound, though that pace of recovery has eased to a four-month low thanks to fewer new orders—namely in domestic markets.

For June, the PMI was 54.7, down from 55.1 in May.

Production volumes expanded for the eighth straight month and output growth picked up a touch. As such, export sales growth reached its strongest since November 2014, owed in part to rising demand from U.S. clients. Purchasing activity rose in the month, while input cost inflation was the lowest so far this year, which meant factory gate price inflation slowed.

“While June’s survey data continued to show improvements in manufacturing sector business conditions, there is a minor concern that the current data reflects the weakest growth in June,” Christian Buhagiar, SCMA president and CEO, said. “However, it is optimistic that improvements were reported in all regions of Canada, with the greatest gains found in the Alberta and British Colombia region.”

Mexico

In June, the PMI was 52.3, up from 51.2 in May, marking Mexico’s strongest manufacturing sector performance in more than one year.

Output, new orders and employment all increased in the month, and manufacturers say client demand, rebuilding inventories and launching new products helped the cause. Cost pressures eased as input prices rose at the slowest pace since late 2015, though some manufacturers said exchange rates upped their cost burdens. Outlook for manufacturing is good—more than half of the PMI survey respondents said they expect output levels to increase in the next year.

“The latest PMI survey provides a positive signal for near-term growth momentum across the Mexican manufacturing sector,” IHS Markit senior economist Tim Moore said. “Stronger rises in production and incoming new work underpinned the fastest improvement in business conditions since May 2016.”

Japan

The PMI for the month was 52.4, down from 53.1 in June. Though growth slowed slightly, June marked the tenth straight month of expansion for Japan.

Growth in production and new orders have been ongoing, though they were weaker in June and rising demand from Southeast Asia helped fuel the rise in new export business. However, meeting that demand meant delivery times lengthened as vendor capacity grew pressured. Some manufacturers were able to increase their capacity, which led to just a marginal rise in backlogs of outstanding work. Stronger demand and limited supply also meant input price inflation, and manufacturers increased their prices.

“Although final PMI data for June confirmed that growth slowed, the sector continued to benefit from rising global demand, especially from South East Asia which was a key source of new order wins,” IHS Markit senior economist Paul Smith said. “The current broad-based strength of global growth is also having a noticeable impact on supply chains, with Japanese manufacturers suffering the greatest delays to their ordered inputs since early 2014.”

Vietnam

A solid rise in new orders led to increased production, employment and purchasing activity. Growth in the consumer and intermediate goods sectors helped bolster new business, and monthly output increased for the eighth straight month. Purchasing activity increases pushed post-production inventories up, and input costs inflation picked up, though weaker than the first three months of 2017. Facing raw material shortages and transportation problems, vendor performance deteriorated for the fifth month in a row.

“Although slightly down on the first quarter of the year, the average PMI reading over Q2 points to a further solid expansion of Vietnamese manufacturing output,” IHS Markit’s Andrew Harker said. “IHS Markit forecast a rise of 6.2% in Vietnamese GDP this year, with these data suggesting that the manufacturing sector continued to make a positive contribution.”

U.K.

PMI for the month came in at 54.3, down from 56.3 in May, though the average PMI over the whole second quarter (55.9) was the best in three years.

Production increased for the eleventh consecutive month on higher intakes of new business, and slower new order growth curbed output increases. Input costs increased at a slower rate, but supply chain pressures remained and vendor performance deteriorated.

“New business rose at the weakest pace for nearly a year and growth was down sharply from April’s near three-year high. This slowdown was largely centered on the domestic market, where increased business uncertainty appears to have led to some delays in placing new contract,” IHS Markit senior economist Rob Dobson said. “Export orders remained disappointingly lackluster despite the ongoing competitiveness boost of the weak sterling exchange rate.”

Eurozone

The PMI for June was 57.4, up from 57.0 in May and the fastest in more than six years.

Germany, France, Italy, the Netherlands, Ireland, Greece and Austria all saw improved performance in the month and output expanded thanks to increases in new work. Greece’s PMI moved back into expansion territory for the first time since August 2016, reaching a 37-month high. In general, Euro area manufacturing production and new orders expanded at the quickest pace since early 2011.

“Exports continue to play a major role in driving the expansion, increasing in recent months at rates not seen for six years, buoyed in part by the weak euro. But it’s also clear that factories are benefitting from ongoing strong demand from domestic customers,” IHS Markit’s Williamson said. “There’s no sign of the impressive performance ending anytime soon.”

VF Corp. said it will reinvest roughly $100 million back into its business to make it more agile and consumer focused, even while dealing with implications of the new Tax Act on its multinational operations.

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